30 April 2012

Unionised public sector and formal private sector workers earn more than informal sector workers - the question is whether this is just because they are simply "better quality" or more productive workers and earn that extra pay, or whether the labour market is "segmented" and trade unions keep wages artificially high and erect barriers to competition from all those informal sector workers.

To explore these competing hypotheses they control for a bunch of individual characteristics which might indicate the "quality" of the worker to see if an unexplained residual remains which we can attribute to labour market segmentation. This includes controlling for "unobserved" but fixed individual characteristics, which is a pretty cool technique you can use when you have a dataset tracking the same individuals over time.

Their analysis shows that the higher wages for private sector unionised workers can be entirely explained through individual characteristics. They are just higher quality, more productive workers.

The higher wages for public sector unionised workers can't be explained this way. Similar workers seem to earn more in the public sector than they would in the private sector.

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"Because the consequences for human welfare involved in questions like these are simply staggering: Once one starts to think about them, it is hard to think about anything else." (Lucas 1988, On the Mechanics of Economic Development)

"The philosophers have hitherto only interpreted the world in various ways; the point however is to change it" (Marx 1888)

Roving Bandit is a reference to Mancur Olson, not because I think I'm some kind of badass.

"represent the material embodiment of market discourses that run through the capillary structures of orgs that conform contemporary neoliberal ed policy" -- Education International